The problem with predicting economic downturns is that each one happens for a different reason. For employers as well as economists, it’s a learning curve. “People in middle management weren’t in influential positions in the 1980s. [Many] are learning how recession works for the first time,” says Andrew Walker, a business director at Croner Reward, a pay and benefits consultancy.

A downturn creates a jobs market of its own. Redundant or demotivated employees form a floating talent pool. So how do you motivate employees faced with a climate of job losses and constrained personal finances, yet keep spending frugal? “It’s a tricky place to be. Employers want to hang on to their people but they have the pressure of a fall in output or sales, or an increase in fuel costs,” Walker says. We are not likely to see “hikes in salaries”, he says. Instead, flexible working will be one solution to reducing billable hours without slashing headcount. He predicts an investment in talent management to encourage those with core skills to stay.

Research by the Recruitment and Employment Confederation supports the suggestion that firms are unlikely to cut pay. Average starting salaries for permanent jobs continued to rise in June. “Pay is still increasing because of inflationary pressures – unions are still saying 2 per cent is a pay cut if inflation is at 3.8 per cent,” says Kevin Green, the chief executive.

With much of the UK’s wealth tied up in housing, building companies have been hit hard. Julie Lenihan, the human resources manager at United House, a social housing contractor, says that the specialist firm is less affected than others, but still needs to respond to the industry crisis. “We need to make sure that when the upturn comes we are ready.” Salaries are competitive so the company is concentrating on training , she says. “We are continuing to train people and motivate people to retain loyalty.” United House recently launched a talent management programme and next month will publish a company-wide training plan.

Learn how to gain from redundancy

Losing your job need not be the end of the world; with a little help it could mean the beginning of a better way of life

BACKGROUND

• How to recession proof yourself

• How to turn dead ends into new paths

• Men smarten up in wake of redundancy fears

BACKGROUND

• Darling calls for pay restraint as prices rise

• A jobless rise but not a bloodbath

• Citigroup and Goldman Sachs cut more staff

• Credit Suisse to cut 75 jobs in latest cutbacks

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• Snakes & Ladders

• Graduate jobs

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Bonuses are an obvious way for employers to reduce spending, especially if they are linked to company performance, says David Conroy, the head of reward at Mercer, a consultancy. Falling share prices spell smaller payouts, particularly in financial services. “It’s a way in which employers can honestly respond to testing times,” he says. But while a drop in cash flow is tough, employees should take a long-term view. “For people new to the job market it’s a shock. But in those industries there’s a realistic view that there are good and bad times. The trend is still upward if you turn it back enough years.” A spokesman for the Financial Services Authority says that banks may introduce clawback bonuses that can be retracted, or deferred share options: “Shareholders need to carefully consider their incentive structures.”

Ant Donaldson, a senior specialist in employee benefits at E.ON, an energy company, says that flexible benefits and choice help the firm to compete in the employment market. “[In this economic climate] voluntary benefits schemes come into their own,” he says. The company offers childcare and supermarket vouchers, deals on insurance and the option to sell back holiday. Aware that the stress of personal finances can hit performance and lead to absenteeism, E.ON offers financial awareness sessions and support.

Downturns create camaraderie: teams bond better, says Mary Kennedy, director of the Strategic Human Resource Management programme at Ashridge Business School. With everyone affected, firms need to distribute loss in a fair and equitable way – and communicate this to staff, “Leadership needs to take a hit. It’s unacceptable to see senior executives getting large bonuses when people are struggling to pay their mortgage.” The best employees often come to the fore in adversity, she says. Variable pay, earned according to individual results, helps to retain them. Ultimately, though, being a good company to work for and communicating that fact is worth more than any tangible reward, Kennedy says. “If all you are doing is bribing people to work for you, there’s something flawed in your model.”

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